Morning Commentary: Convertibles weaken with stocks; Ares Capital’s new issue trades below par

By Stephanie N. Rotondo

Seattle, Jan. 30 – As the common stock markets were waning early Monday, the convertible bond market was sitting on the sidelines.

“The [stock] market is down 220 [points] now,” a trader said at mid-morning. “Here’s the volatility that everybody wanted and they’re just sitting on their hands.”

The Dow Jones industrial average dropped from the historic 20,000-mark that it reached last week, as investors reacted poorly to the new U.S. president’s executive order to ban certain immigrants travelling from certain predominantly Muslim countries. Protests swept the nation over the weekend in response and several companies expressed concerns about how it might impact their workers.

As for early dealings, convertible bonds were trending lower in line with the broader market, though overall trading was limited.

Ares Capital Corp.’s $350 million of 3.75% convertible notes due 2022 – a deal priced Tuesday – were seen falling under par to 99.125 bid, 99.375 offered.

“That coupon can’t hold them up,” a trader said.

The underlying shares (Nasdaq: ARCC) were down 18 cents, or 1.09%, to $16.81.

The deal came with a 15% initial conversion premium.

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